Email this article news.gov.hk
Speech by Deputy Secretary for Financial Services and the Treasury (Financial Services) at Asia Pacific Securities Market Leadership Forum 2014 (English only)
**********************************************************

     Following is the speech by the Deputy Secretary for Financial Services and the Treasury (Financial Services), Miss Salina Yan, at the Asia Pacific Securities Market Leadership Forum 2014 today (February 27):

Distinguished guests, ladies and gentlemen,

     It is my great pleasure to join you all again at the Asia Pacific Securities Market Leadership Forum. A warm welcome, especially to those of you travelling from abroad to attend the event.

     There is a saying that "a week is a long time in politics". In the business world, a year is certainly a very long time, and changes are unavoidable. I therefore welcome this annual forum, which provides a timely platform to discuss how we are going to manage various changes. As our Financial Secretary delivered the Budget yesterday for the HKSAR for the coming financial year, this is also a welcome opportunity for me to update you on our economic outlook and major developments in the financial services area.

     In Hong Kong, the economy grew by 2.9 per cent in 2013, a marked improvement over the 1.5 per cent in 2012, and we forecast a growth of 3 to 4 per cent in 2014. The faster economic growth in the Mainland provides crucial support to the regional economy. Having said that, the external environment is still weak, shadowed by uncertainty over the Federal Reserve Board's exit strategy and interest rate policy in the US and economic recovery in the Eurozone. The market performance in mid to late January arising from sell-offs in emerging market currencies is a timely and vivid reminder that financial markets remain volatility-prone, and highlight the need for a robust financial infrastructure, a topic that would be covered in the ensuing discussion today.

Enhancing financial infrastructure

     Here in Hong Kong, we have a robust financial infrastructure, with the interbank Real Time Gross Settlement systems, debt securities settlement and custodian systems and system links for cross-border transactions providing multi-currency and multi-channel platforms to handle real-time transactions. In particular, as the world's largest offshore Renminbi (RMB) business centre, Hong Kong has developed a unique, highly efficient and reliable RMB clearing platform - the RMB Real Time Gross Settlement system - to facilitate banks from all over the world to make RMB payments. In addition, the CNH Hong Kong Interbank Offered Rate fixing, launched in June last year, provides a reliable benchmark for the market and serves as a reference for the pricing of loan products.

     We will continue to upgrade our financial infrastructure for a smoother flow of capital and better investor protection. A number of initiatives are in the pipeline. The Hong Kong Monetary Authority (HKMA) has been actively promoting electronic payment systems to boost the operational efficiency of enterprises and banks. Among other initiatives, in collaboration with the Hong Kong Association of Banks, the HKMA has issued a Best Practice for Near Field Communication Mobile Payment in Hong Kong to ensure the steady development of the market. Meanwhile, an "e cheque service" is expected to be launched in the latter half of 2015.

     We also plan to amend the law to provide a comprehensive regulatory framework for stored value facilities and retail payment systems to offer better protection for users, and enhance the safety and soundness of such facilities and services. We consulted the public on the proposed regulatory framework last year. The responses were generally positive. We plan to introduce an amendment bill into the Legislative Council in the next legislative year.

     On the securities side, we are finalising an amendment bill to provide for a regulatory framework to enable the introduction of an uncertificated securities market regime in Hong Kong, providing investors with the option to hold and transfer legal ownership in securities without paper documents. This initiative will help enhance the overall efficiency of our securities market, improve investor protection and maintain our market competitiveness. We plan to introduce a bill into the Legislative Council in the first half of this year.

     I would like to complete the picture by updating you on the fact that we have geared up our local financial infrastructure for the reform of the over-the-counter (OTC) derivative market. The HKMA established the local trade repository last year and has implemented interim reporting requirements on banks. OTC Clear, the local central counterparty, was also launched last year, providing clearing services for inter-dealer trades on interest rate swaps and non-deliverable currency forwards.

Stepping up risk management

     Risk management goes hand in hand with infrastructure development in achieving financial stability. Advanced economies and international regulatory organisations have initiated various financial reforms since the 2008 financial crisis. As an international financial centre, Hong Kong has made every effort to keep pace with new global regulatory benchmarks, having regard to local circumstances.

     Let me first start with the progress of the regulatory reform of the OTC derivative market in Hong Kong. We introduced a bill into the Legislative Council in July last year to enable Hong Kong to put in place a regulatory regime which meets the requirements of the G20 and is in line with developments in other international financial centres. The Bills Committee has basically finished its examination of the bill, and we look forward to the passage of the bill in one or two months. The regulators will soon conduct a public consultation on the detailed rules.

     Another important reform under the G20 agenda would be the development of an effective resolution regime for financial institutions. It serves to enhance the resilience and stability of the global financial system. According to the Key Attributes of Effective Resolution Regimes for Financial Institutions (Key Attributes) published by the Financial Stability Board in November 2011, the relevant authorities should be vested with the resolution powers to carry out orderly resolution of a failing financial institution without severe systemic disruption of their vital functions, protecting taxpayers' money in tandem. In order to meet the standards, it will be necessary to make legislative amendments to bring our existing arrangements in line with the standards in the Key Attributes. We launched the first stage of public consultation last month, with a view to gathering views from the public and the financial services sectors on our initial thinking. The consultation will end in early April. We will carefully analyse the views gathered, and conduct the second stage of public consultation later this year.

     On Basel III, we have implemented the first phase of capital requirements from January 1 last year, covering three new risk-weighted capital adequacy ratios computed with enhanced counterparty credit risk coverage. We are preparing for the implementation of the liquidity and capital buffer requirements promulgated by the Basel Committee. The relevant subsidiary legislation will be introduced into the Legislative Council within this year in order to meet the Basel Committee's timetable.

Promoting market development

     While we are making a lot of effort in updating our regulatory toolbox, we have not lost sight of the need for market development to capture business opportunities in the Asia Pacific region amidst intensifying competition. With fast economic growth and wealth creation in Asia, increase in portfolio allocation into Asian markets and continued financial market liberalisation in China, Hong Kong is in a good position to establish itself as a premier offshore RMB business centre, an international asset management hub and a leading global capital formation platform.

     As the world's largest offshore RMB business centre, Hong Kong has the world's largest offshore pool of RMB liquidity. As at the end of last year, RMB deposits and outstanding RMB certificates of deposit altogether exceeded RMB 1,000 billion. Also, Hong Kong provides financial services such as RMB payment, financing and investment to enterprises around the world. The Renminbi Qualified Foreign Institutional Investors (RQFII) scheme was expanded further in March last year, allowing financial institutions which are registered and have major operations in Hong Kong to apply for RQFII qualifications with relaxed investment restriction of RQFII funds, thereby enriching the types of RMB products.

     We shall enrich our RMB platform with more diversified business activities and products, like cross-border RMB insurance and the provision of RMB services to overseas financial institutions at the wholesale level. We have also established RMB business links with overseas markets, including London, Australia, Paris and Malaysia and will continue our promotional efforts.

     Asset management has become more prominent in the international financial landscape, and more so for Hong Kong. We have been capturing wealth management opportunities by attracting more funds of various types to base in Hong Kong to broaden the variety and scope of our fund business, and to facilitate portfolio allocation into the Asian markets. In 2013, 995 companies were licensed or registered to conduct asset management business in Hong Kong, an increase of 6.4 per cent over 2012. It is our continuous aim to foster Hong Kong as the premier asset management centre in the Asia Pacific Region with comprehensive fund and asset management activities by means of multi-pronged measures.

     In 2010, the Government extended the stamp duty concession to cover exchange traded funds (ETF) that track indices comprising not more than 40 per cent of Hong Kong stocks. Since then, the number of ETFs listed in Hong Kong has seen a substantial increase from 69 to 116 at the end of last year, and the daily average turnover increased from $2.4 billion to $3.7 billion, making Hong Kong one of largest ETF markets in the Asia Pacific region. The Financial Secretary now proposes to waive the stamp duty for the trading of all ETFs so that the trading cost of ETFs with a higher percentage of Hong Kong stocks in their portfolios can be reduced as well. We believe that this initiative will enable Hong Kong to develop into a regional ETF hub and make Hong Kong a more attractive place for the development, management and trading of ETFs. We also believe that this will attract ETF issuers to launch ETF products in Hong Kong, especially those that track markets in the Asian time zone. We plan to introduce the necessary legislative amendments in the coming legislative session for early implementation of the exemption.

     Also, noting that there is a growing popularity among the fund industry to use open-ended investment companies as a vehicle for setting up investment funds, together with the Securities and Futures Commission and relevant government departments, we are formulating legislative proposals for the necessary regulatory framework to facilitate the introduction of these companies in Hong Kong. This new market choice will help attract more funds to use Hong Kong as their investment platform. We are at the final stage of preparing for the launch of a public consultation exercise soon.

     Accounting for around 20 per cent of Asia's total capital under management in private equity funds, Hong Kong ranks second in Asia after Mainland China in this business. The total amount of such capital in Hong Kong reached US$94 billion as at end September 2013. To attract more private equity funds to domicile in Hong Kong, we are working on legislative amendments to extend profits tax exemption for offshore funds. The proposed amendments aim to include transactions in private companies which are incorporated or registered outside Hong Kong and do not hold Hong Kong properties nor carry out business in Hong Kong, thus allowing private equity funds to enjoy the same tax exemption as offshore funds.

     On the development of Islamic finance, we amended our tax laws last July to provide a comparable taxation framework for sukuk vis-à-vis conventional bonds, with a view to enhancing the competitiveness of Hong Kong in the development of a sukuk market. To continue to make steady progress on this front, we are seeking to accommodate the issuance of sukuk under the Government Bond Programme. We believe any inaugural issue of sukuk by the Government will encourage more investors to use Hong Kong's financing platforms to raise funds through sukuk.

     Speaking of market development, professionals and skilled personnel in various areas of the financial services industry are of vital importance to the sustained development and expansion of a financial centre. As proposed in the Financial Secretary's Budget, we shall consult the industry shortly and look at the related issues. We would welcome your views.

     Last but not the least, after years of preparation and consolidated efforts, the new Companies Ordinance will come into operation on March 3. The new Ordinance will provide a modernised legal framework for the incorporation and operation of companies in Hong Kong and bring about a series of changes which will enhance corporate governance and facilitate business. Shareholders' interest will be better protected and the transparency of company operation as well as the accountability of directors will be enhanced. At the same time, procedures will be simplified and compliance costs will be reduced under the new law. For example, companies may dispense with AGMs with members' consent and more companies will be eligible for simplified financial reporting. The new Ordinance will also abolish outdated concepts like the par value. Provisions are in place to ensure a smooth transition to the new regime.

Conclusion

     Ladies and gentlemen, I have updated you on some of the key initiatives to strengthen Hong Kong's role as an international financial centre. I look forward to the sharing of ideas and market views by other speakers and participants.

     On this note, I wish you all a successful forum and our visitors an enjoyable stay in Hong Kong. Thank you.

Ends/Thursday, February 27, 2014
Issued at HKT 18:09

NNNN

Print this page